As of 1 January 2019, Austria transposed CFC legislation into national law according to the requirements of the EU Anti-Tax Avoidance Directive (ATAD). On 25 January 2019, the Ministry of Finance issued an Ordinance to resolve uncertainties regarding the new CFC legislation.
In the following, we present the most significant aspects and conditions of the CFC legislation and the Ordinance, as well as possible areas of action.
Even after the issue of the Ordinance, most of the law’s complexity remains. We therefore strongly recommend analyzing its applicability on a case-by-case basis. For structuring purposes, especially the participations of the CFC should be considered carefully, as distributions from participations or sale of the participations can either be qualified as active or passive income at the level of the CFC.
It should further be kept in mind that, underlying the CFC legislation, Austrian tax law provides for a so-called switch-over rule. The conditions of the switch-over rule generally coincide with the CFC legislation except in case of a significant lower minimum participation percentage of only 5% or more in a foreign corporation. The consequence would be the taxation of dividend or capital gain income instead of its ordinary exemption (= switch-over) at the level of the Austrian shareholding company.
An entity is regarded as a CFC if its shareholder, an Austrian corporation, holds more than 50% of the voting rights or capital or is entitled to more than 50% of the profits. The Ordinance expressly states that the determination of the minimum participation threshold is calculated by adding the directly held shares of the Austrian company and the directly held shares of affiliated companies of the Austrian corporation (Sec 2 of the Ordinance). A company can be considered affiliated if participations exceed 25%.